Municipal Mutual Fund Commentary

Transcription

1 COMMENTARY by Nuveen Asset Management Municipal Mutual Fund Commentary Q 206 Market Review The Federal Reserve (Fed) took a more dovish policy stance, but still runs counter to other developed world central banking policies The municipal yield curve continued to flatten, with longer-term bonds outperforming shorter-term bonds Puerto Rico distress and the ultimate resolution generated headlines, but does not appear to be spreading to the wider municipal market Nuveen High Yield Municipal Bond Fund A NHMAX C NHCCX I NHMRX Nuveen Short Duration High Yield Municipal Bond Fund A NVHAX C NVCCX I NVHIX U.S. economic performance was positive but not spectacular during the first quarter of 206. Growth has downshifted during this phase of the recovery, most likely remaining in the.0% to.5% range. This is unlikely to create much upward pressure on inflation. Interestingly, the sluggish U.S. economy was the envy of the developed world, which is generally struggling to avert a recession. This divergence between U.S. economic performance and other major global economies is putting downward pressure on U.S. Treasury yields. The municipal bond market continued to rally at a steady pace with low volatility in the first quarter. The Federal Reserve (Fed) shifted to a more dovish policy stance and indicated that no more than two rate hikes are expected in 206. The municipal yield curve is flattening, with longer-term bonds outperforming shorter-term bonds. Positive municipal credit trends outweigh the negative, but we are watching fiscal weakness and political volatility in Puerto Rico and Illinois. Although Puerto Rico distress and its ultimate resolution are generating increasing headlines, it does not appear to be spreading to the wider municipal market. We expect this situation to continue. Global and U.S. Economies Continue to Diverge The U.S. economy has been outperforming its peers, mainly thanks to the U.S. consumer. Home and auto sales were solid as the labor market continued to strengthen. The labor market has added more than 200,000 new jobs each month in 206. Headline inflation is being suppressed by weak commodity prices, but the underlying trend is much closer to the Fed s 2% target. Specifically, the core personal consumption expenditures (PCE) deflator remained at.7% year-overyear in March, unchanged from February. Similarly, the unemployment rate rose NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE For more information, please consult with your financial advisor and visit nuveen.com.

2 slightly to 5% in March, due to more workers entering the workforce, another positive for the labor markets. Gross domestic product (GDP) was revised up to.4% for fourth quarter 205, and first quarter 206 will likely register between.0% to.5%. The U.S. economy is maintaining GDP growth in a stable range of % to 2%. This is higher than other major global economies and has been sufficient to support moderate job and wage growth. Global monetary policy saw the European Central Bank and Bank of Japan easing significantly in the first quarter. Both central banks greatly expanded their bond purchasing or quantitative easing (QE) programs to avoid deflation and stimulate growth. In contrast, the Fed raised interest rates in mid-december and it expects to continue tightening this year, albeit slowly. At the Fed s most recent meeting, the board revised median expectations for 206 fed funds increases down from four to two one-quarter point increases. This is a more dovish forecast, but tightening still runs counter to the other developed world central banking policies. U.S. Treasury yields dropped in the first quarter due to global economic weakness and central bank easing, despite the stable U.S. consumer and improving labor market. Treasury yields followed global yields lower, as the 0-year dropped 50 basis points (bps) from 2.27% to.77%. Similarly, the 0-year dropped 4 bps from.02% to a 2.6%. Since 20, municipal volatility has been the lowest of any fixed income asset class, and this trend continued in the first quarter of 206. Municipals Are Less Affected by the Global Slowdown As a domestic market, municipal bonds are more heavily influenced by individual investor and issuer behavior than global factors. Since 20, municipal volatility has been the lowest of any fixed income asset class, and this trend continued in the first quarter of 206. The 0-year AAA municipal yield dropped just 8 bps from 2.82% to 2.74% over the quarter, versus 4 bps for 0-year Treasuries. It is not unusual to see municipal yields follow Treasury yields lower, but at a slower pace and less magnitude. Municipal valuations represent both interest rate and credit-driven factors. Also, in recent years, municipals lower volatility versus Treasuries has been partially because municipals are not directly subject to shifting central bank policies. Municipal technical, supply and demand conditions strengthened in the first quarter: Supply during the first quarter of 206 was moderately below the strong pace of first quarter 205. Refunding activity was down slightly, while new money issuance increased somewhat. Refunding is still the main driver of new issue supply. Refunding in the first quarter represented nearly 40% of new issuance. This is slightly less than 205, but two fed funds rate increases this year may increase refunding activity. The yield curve is flattening, which increases the probability that bonds will be called. We anticipate the 0- to 0-year portion of the yield curve will perform well. 2

3 Demand remains strong and remarkably consistent, as investors continue replacing the $7 billion withdrawn in the second half of 20. First quarter 206 saw municipal inflows of $ billion, nearly double the total of first quarter 205. This adds to inflows of $28 billion in 204 and $5 billion in 205. Traditionally, fund flows experience seasonal weakness as the April 5 tax deadline approaches and investors withdraw money to pay taxes. We are not seeing that seasonal weakness this year. The SIFMA Index, which can be used to track money market fund withdrawals, had been resetting at one basis point for several months. Recently it jumped to 40 basis points. That may mean that investors are pulling money to pay taxes from money market funds rather than longer-duration municipal bond funds. Spreads edged slightly lower, narrowing roughly 2 bps to 28 bps over the quarter (ex Puerto Rico). The S&P Municipal Bond High Yield Index returned 2.27% for the quarter; higher than the.6% return of the S&P Municipal Bond Index, which is dominated by higher grade bonds. Puerto Rico bonds experienced further fundamental deterioration and increased volatility related to the politics around restructuring possibilities. The bonds underperformed, with the average Puerto Rican bond tracked within the S&P Municipal Bond Index returning.02%. Within high yield municipals, the continued strength of the tobacco sector (returning 6.2% in the first quarter) is still making up for any weakness in Puerto Rico. The remaining sectors between those extremes are producing more of a yield-driven performance, similar to the dynamics of 205. Ratios for yields of 0-year AAA rated municipals versus U.S. Treasuries increased from 9% to 0% over the quarter. Ratios have cheapened, but mainly because Treasury yields fell quickly. Municipals broadly are appreciating based on stable overall fundamentals and strong technicals. It is fairly common for municipals to appreciate more slowly than U.S. Treasuries when government bonds rally sharply as they did in the first quarter of 206. Longer Duration and High Yield Poised to Outperform Themes and trends that characterized 205 performance have persisted, and even strengthened, in the first quarter. The yield curve is likely to flatten mildly as the Fed seeks opportunities to increase short-term rates. In this environment, long bonds will likely keep outperforming short bonds, while high yield will likely outperform high quality. Of course, municipal credit is very diverse and credit selection and sector weightings are critical. Municipal government finance officials are still very interested in cost savings when it comes to debt service expense. Therefore, we still see an unusually high volume of refunding as a percentage of total issuance. For municipal bond investors, this means a rising probability for bond calls. In such an environment, higher coupons are going away at a time when investors are struggling to sustain levels of tax-exempt income. Longer-term bonds and high yield bonds have the potential to offer a partial solution. In recent years, municipals lower volatility versus Treasuries has been partially because municipals are not directly subject to shifting central bank policies.

4 Nuveen High Yield Municipal Bond Fund A NHMAX C NHCCX I NHMRX The Fund (Class A Shares at NAV and Class I Shares) outperformed the S&P Municipal Yield Index for the quarter, returning 2.87% and 2.92% vs. 2.27%, respectively Longer yield curve positioning and use of inverse floaters helped performance An underweight to tobacco settlement bonds detracted from performance The Nuveen High Yield Municipal Bond Fund performance was helped by its longer duration and maturity profile, as AAA yields fell by 0.08% during the quarter for 20-year maturities. In addition to this slight decline in interest rates, longer maturities and inverse floaters produced higher yields in the current environment, boosting returns through higher cash flow. Tobacco bonds and Puerto Rico bonds were the most volatile sectors in the first quarter, as they have been for the past two years. Puerto Rico bonds gained just 0.82% for the quarter, while tobacco bonds rose 6.2%. The remainder of the high yield municipal market experienced stable performance, mainly driven by income and a slight narrowing of credit spreads. The use of inverse floating rate securities helped Fund performance due to the higher income distribution and contributions to duration in a period of falling long-term interest rates. The Fund has maintained an approximately 9% effective leverage ratio over the quarter, down slightly from 205. The Fund employs leverage when the municipal yield curve is historically steep and upwardly sloping. Though the curve flattened slightly over the quarter, it still maintains a very positive slope. We believe the structures remain attractive in the current environment based on their income and total return potential. The Fund s 0.00% exposure to Puerto Rico bonds (versus 9.85% for the S&P Municipal Yield Index) and overall security selection were positive for performance. 2 It has become a consensus view that Puerto Rico does not have the capacity to repay all of its debts. The process for determining recovery rates has become highly political and difficult to predict. Until there is greater clarity around Puerto Rico debt restructuring and economic growth, it is unlikely that the Fund will have exposure to these bonds. The Fund s typical 5% exposure to tobacco securitization grew to approximately 7% in 205, mainly because the bonds market values increased faster than other portfolio holdings. We maintained this level of tobacco exposure in the first quarter of 206, and tobacco bond outperformance again marginally increased Fund exposure to this sector. The current 7.5% exposure is still well below the index at.57%. We ve historically maintained an underweight to the Please see page 5 for complete performance. 2 Holdings discussed are as of a certain date; this issuer may have represented a significantly higher percentage of Fund holdings prior to that date and there is no guarantee the Fund will not purchase additional securities from this issuer in the future. For a complete listing of historical and most recent month end Fund holdings, visit the Fund s page on Nuveen.com. 4 FUND DESCRIPTION A high yield strategy that invests primarily in noninvestment-grade and unrated municipal bonds that under normal market conditions, will maintain a weighted average maturity in excess of ten years and seeks to provide high current income exempt from regular federal income taxes. Some income may be subject to state and local taxes and to the federal alternative minimum tax. Capital gains, if any, are subject to tax. The Fund opportunistically employs leverage through the use of inverse floating rate securities issued in tender option bond transactions to try to enhance yield and duration. OVERALL MORNINGSTAR RATING CLASS I SHARES CLASS A SHARES Among 67 High Yield Muni Funds; based on historical risk-adjusted return as of //6 PORTFOLIO MANAGEMENT John Miller, CFA Co-Head of Fixed Income 2 years investment experience Managed Fund since 2000 SECTOR WEIGHTINGS Tax Obligation/ Limited Health Care Education and Civic Organizations Industrials Consumer Staples Transportation Long Term Care Tax Obligation/ General Utilities Water and Sewer 5.0% 9.% 7.8% 7.% 4.% 2.8% 2.6%.% 2.% 2.6% As a percentage of total net assets. Totals may not add up to 00% due to rounding. These positions may change over time without notice. Positions of inverse floating rate securities, if any, show the amount of the residual inverse floater only, and not the amount of the underlying bond and any associated liability to the holder of the associated floating rate security, and therefore this presentation may not be fully consistent with generally accepted accounting principles.

5 sector because it is difficult to diversify with just one cash flow stream, primarily taxes on domestic cigarette sales, which are experiencing secular decline. Somewhat offsetting this risk are the facts that the sector is the most liquid in the municipal high yield market and domestic cigarette sales unexpectedly grew in 205. Even one year of cigarette sales growth puts tobacco structures on better fundamental footing in the event that a secular trend of declines resumes in future years. Portfolio Outlook We continue to favor our longer yield curve stance, specifically around 22 years. We believe long rates have very few pressures to increase significantly. Income will drive returns, and our longer duration and maturity offer higher income potential and the ability to roll down the yield curve. Puerto Rico and tobacco were the big yield movers in 205, representing 0.0% and 7.5% of the Fund, respectively. This leaves 92.5% of the portfolio invested in our traditionally favored sectors, including essential service infrastructure bonds such as real estate backed community development districts repaid by property taxes, in addition to hospitals and schools. There were fewer marketmoving headlines driving performance in these sectors. However, these sectors have provided a stable source of income with low default rates, and we believe such holdings are generally priced at attractive credit spreads above the AAA yield curve. CREDIT QUALITY % Fund AAA.2 AA.8 A 2.4 BBB.2 BB.5 B.8 CCC 2. CC 0. C 0.0 NR 9.8 Other 0. As of //6. Ratings shown are the highest rating given by one of the following national rating agencies: S&P, Moody s or Fitch. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. Bonds backed by U.S. Government or agency securities are given an implied rating equal to the rating of such securities. Holdings designated NR are not rated by these national rating agencies. Positions of inverse floating rate securities, if any, show the amount of the residual inverse floater only, and not the amount of the underlying bond and any associated liability to the holder of the associated floating rate security, and therefore this presentation may not be fully consistent with generally accepted accounting principles. Average Annualized Total Returns as of //6 Ticker Symbol Date QTD Year Without Sales Charge 5 0 Since QTD Year With Sales Charge 5 0 Since Expense Ratios SEC 0-Day Yield 2 NUVEEN HIGH YIELD MUNICIPAL BOND FUND A NHMAX 6/7/ I NHMRX 6/7/ S&P Municipal Yield Index Returns quoted represent past performance which is no guarantee of future results. Investment returns and principal value will fluctuate so that when shares are redeemed, they may be worth more or less than their original cost. Current performance may be higher or lower than the performance shown. Returns without sales charges would be lower if the sales charge were included. For the most recent month-end performance visit or call Class A shares have a 4.2% maximum sales charge. Class I shares have no sales charge and may be purchased under limited circumstances or by specified classes of investors. Returns assume reinvestment of all dividends and capital gains. Expense ratios are based on the Fund s most recent fiscal year end. The net expense ratio excludes credits earned on the Fund s cash on deposit with the custodian bank but includes interest expense on borrowings and interest on self-deposited inverse floaters held by the Fund, if any. 2 The SEC 0-Day Yield is computed under an SEC standardized formula and is based on the maximum offer price per share. 5

6 Nuveen Short Duration High Yield Municipal Bond Fund A NVHAX C NVCCX I NVHIX The Fund (Class A Shares at NAV and Class I Shares) outperformed the S&P Short Duration Municipal Yield Index for the quarter, returning.82% and.86% vs..7%, respectively An overweight in lower-rated bonds, and sectors such as dedicated and incremental tax and hospitals helped performance An underweight to transportation hurt relative performance The Nuveen Short Duration High Yield Municipal Bond Fund has a duration similar to the index at an average of 4.0 years, but decreased to below 4.0 for the quarter. The Fund s yield curve positioning was marginally beneficial. Over the quarter, the Fund maintained an overweight to bonds with durations of 8 to 0 years and an underweight to bonds with durations of 4 years or less. Bonds with longer durations outperformed shorter municipals, particularly in the intermediate part of the yield curve where yield declined more than shorter and longer maturities. Yields declined 22 basis points for 7-year and 0-year AAArated maturities, compared to 4 basis points for 0-year maturities. The main drivers of return in the short duration high yield market continue to be sector-specific contraction of credit spreads, outperformance of tobacco and underperformance of Puerto Rico. The Fund is underweight to general obligation bonds at 4.42% versus 9.52% for the index. The Fund s largest overweight is to dedicated and incremental tax bonds, largely composed of land secured bonds, at 2.74% versus.98% for the index. The Fund is also overweight higher education (including charter schools) and health care. The Fund is underweight transportation bonds, the fourth best performing sector. Tobacco was again the best performing sector, followed by strong relative returns for land secured (.96%), higher education and charter schools (.89%), transportation (.87%) and health care (.60%). Tobacco bonds in the index returned.0%, while Puerto Rico Bonds returned -0.28%. Tobacco makes up 7.2% of the index and Puerto Rico makes up.72%. The Fund has a modest overweight in tobacco and no Puerto Rico exposure. 2 Credit selection contributed meaningfully to Fund outperformance during the quarter. Of the three rating categories that offer high yield opportunities BBBrated, below-investment grade and non-rated BBB-rated bonds performed best within the index. In contrast, the Fund s publicly rated below-investment grade rated bonds performed the best, followed by its non-rated bonds and BBB-rated bonds. Please see page 7 for complete performance. 2 Holdings discussed are as of a certain date; this issuer may have represented a significantly higher percentage of Fund holdings prior to that date and there is no guarantee the Fund will not purchase additional securities from this issuer in the future. For a complete listing of historical and most recent month end Fund holdings, visit the Fund s page on Nuveen.com. FUND DESCRIPTION The Fund seeks high current income exempt from regular federal income taxes by investing in municipal bonds, a substantial portion of which may be rated below investment-grade, while maintaining a weighted average effective portfolio duration of less than 4.5 years. Some income may be subject to state and local taxes and to the federal alternative minimum tax. Capital gains, if any, are subject to tax. The Fund may opportunistically employ leverage through the use of inverse floating rate securities. PORTFOLIO MANAGEMENT John Miller, CFA Co-Head of Fixed Income 2 years investment experience Managed Fund since 20 Timothy Ryan, CFA 25 years investment experience Managed Fund since 20 Steven Hlavin years investment experience Managed Fund since 20 SECTOR WEIGHTINGS Tax Obligation/ Limited Health Care.0% Education and Civic Organizations 0.9% Transportation 8.% Consumer Staples Utilities Long Term Care Industrials Tax Obligation General Counsumer Discretionary 5.6% 7.8% 7.2% 6.% 2.% 4.4% 24.7% As a percentage of total net assets. Totals may not add up to 00% due to rounding. These positions may change over time without notice. Positions of inverse floating rate securities, if any, show the amount of the residual inverse floater only, and not the amount of the underlying bond and any associated liability to the holder of the associated floating rate security, and therefore this presentation may not be fully consistent with generally accepted accounting principles. 6

7 The Fund s positions outperformed the index in the following sectors: dedicated and incremental tax, tobacco, higher education and charter schools, health care, transportation, utility and IDR/PCR bonds. The IDR/PCR holdings, otherwise known as corporate municipals, returned.90% versus.27% for the index. This is a reversal from last quarter when the IDR/PCR holdings dragged performance but significantly outperformed taxable corporates. Portfolio Outlook Demand for high yield municipal bonds continues to accelerate. Investor preference appears to have shifted toward a longer duration, maximum yield fund bias. Fund flows are consistently positive, but the relatively smaller size makes them significantly more manageable than past periods of strong flows. Credit spreads have contracted more for longer duration high yield municipal bonds, increasing the relative value of short duration high yield municipals. The Fund remains focused on purchasing bonds with lower credit ratings where credit spreads remain high and relative value is attractive. The Fund continues to look at new issuance and disciplined security selection in the secondary market. The Fund s duration has decreased below 4.0 years, adding flexibility to move out the yield curve and increase the opportunity set, which is helpful due to light supply. We anticipate positive technical factors to support the market in the short-term and improving credit fundamentals to support the market in the long-term. CREDIT QUALITY % Fund AAA 2.4 AA 5.9 A 0.5 BBB 2.8 BB 5.9 B 2.7 CCC 0.6 CC 0.2 NR 0. As of //6. Ratings shown are the highest rating given by one of the following national rating agencies: S&P, Moody s or Fitch. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. Bonds backed by U.S. Government or agency securities are given an implied rating equal to the rating of such securities. Holdings designated NR are not rated by these national rating agencies. Positions of inverse floating rate securities, if any, show the amount of the residual inverse floater only, and not the amount of the underlying bond and any associated liability to the holder of the associated floating rate security, and therefore this presentation may not be fully consistent with generally accepted accounting principles. Average Annualized Total Returns as of //6 Without Sales Charge With Sales Charge Expense Ratios SEC 0-Day Yield 2 Ticker Symbol Date QTD Year Since QTD Year Since NUVEEN SHORT DURATION HIGH YIELD MUNICIPAL BOND FUND A NVHAX 2// I NVHIX 2// S&P Short Duration Municipal Yield Index Returns quoted represent past performance which is no guarantee of future results. Investment returns and principal value will fluctuate so that when shares are redeemed, they may be worth more or less than their original cost. Current performance may be higher or lower than the performance shown. Returns without sales charges would be lower if the sales charge were included. For the most recent month-end performance visit or call Class A shares have a 2.5% maximum sales charge. Class I shares have no sales charge and may be purchased under limited circumstances or by specified classes of investors. Returns assume reinvestment of all dividends and capital gains. Expense ratios are based on the Fund s most recent fiscal year end. Other expenses have been restated to reflect current contractual fees. The net expense ratio excludes credits earned on the Fund s cash on deposit with the custodian bank, if any. 2 The SEC 0-Day Yield is computed under an SEC standardized formula and is based on the maximum offer price per share. 7

8 The views and opinions expressed are for informational and educational purposes only as of the date of writing and may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. SOURCES Treasury Yields and Ratios: Bloomberg (subscription required) Municipal Bond Yields: Municipal Market Data ICI Fund Flows: Municipal Issuance: Seibert Research Defaults: Industry Overview, Municipals Mid Year Review, Bank of America/Merrill Lynch Research, January 29, 206. Global Growth: International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) Standard & Poor s and Investortools: Flow of Funds, The Federal Reserve Board: Payroll Data: Bureau of Labor Statistics Bond Ratings: Standard & Poor s, Moody s, Fitch New Money Project Financing: The Bond Buyer Consumer Price Index: U.S. Dollar: MORNINGSTAR DISCLOSURES These ratings are for Class I and A shares only; other classes may have different performance characteristics. NUVEEN HIGH YIELD MUNICIPAL BOND FUND For the period ended March, 206, Morningstar rated this Fund s I and A shares, for the overall, and -, 5-, and 0-year periods. The Class I shares received 4, 5, 5, and stars and the Class A shares received 4, 5, 5, and stars among 67, 67, 49 and 98 and High Yield Muni Funds, respectively (derived from a weighted average of the fund s three-, five-, and 0-year [if applicable] riskadjusted return measures and Morningstar Ratings metrics). The fund employs high yield strategies, including significant investment in below investment grade bonds and opportunistic use of portfolio leverage during certain periods through investment in inverse floating rate securities, which other funds in its Morningstar category may not have used to the same extent. As a result, performance comparisons may be less meaningful. Investment performance reflects applicable fee waivers. Without such waivers, total returns would be reduced and ratings could be lower. For funds with at least a three-year history, a Morningstar Rating is based on a risk-adjusted return measure (including the effects of sales charges, loads, and redemption fees) with emphasis on downward variations and consistent performance. The top 0% of funds in each category receive 5 stars, the next 22.5% 4 stars, the next 5% stars, the next 22.5% 2 stars, and the bottom 0% star. Each share class is counted as a fraction of one fund within this scale and rated separately. 206 Morningstar, Inc. All Rights Reserved. The information contained herein: () is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and () is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. CFA and Chartered Financial Analyst are registered trademarks owned by CFA Institute. GLOSSARY The S&P Municipal Yield Index seeks to provide a measure of an investing strategy used in the municipal market that allocates a different percentage to non rated bonds and bonds rated below investment grade than to bonds rated investment grade. The S&P Short Duration Municipal Yield Index tracks both the investment grade municipal bond market and the high yield municipal bond market in the - to 2-year maturity range. The SIFMA Municipal Swap Index is a 7-day high-grade market index comprised of taxexempt Variable Rate Demand Obligations (VRDOs) with certain characteristics. SIFMA stands for Securities Industry and Financial Markets Association. Net asset value (NAV) is the net market value of all securities held in a portfolio. Effective Duration is for a bond with an embedded option when the value is calculated to include the expected change in cash flow caused by the option as interest rates change. This measures the responsiveness of a bond s price to interest rate changes, and illustrates the fact that the embedded option will also affect the bond s price. A WORD ON RISK Mutual fund investing involves risk; principal loss is possible. Debt or fixed income securities such as those held by the funds, are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Credit risk refers to an issuers ability to make interest and principal payments when due. Below investment grade or high yield debt securities are subject to liquidity risk and heightened credit risk. The funds use of inverse floaters creates effective leverage. Leverage involves the risk that the funds could lose more than its original investment and also increases the funds exposure to volatility, interest rate risk, and credit risk. In addition, the Nuveen High Yield Municipal Bond Fund concentrates in noninvestment- grade and unrated bonds with long maturities and durations which carry heightened credit risk, liquidity risk, and potential for default. The fund oftentimes engages in a significant amount of portfolio leverage and in doing so, assumes a high Nuveen Investments West Wacker Drive Chicago, IL nuveen.com 8 level of risk in pursuit of its objectives. The Nuveen Short Duration High Yield Municipal Bond Fund concentrates in non-investment grade and unrated bonds with shorter maturities and durations which carry heightened credit risk, liquidity risk, and potential for default. In addition, the Fund may engage in a moderate amount of portfolio leverage and in doing so, assumes a higher level of risk in pursuit of its objectives. Before investing, carefully consider fund investment objectives, risks, charges and expenses. For this and other information that should be read carefully, please request a prospectus or summary prospectus from your financial advisor or Nuveen Investments at or visit nuveen.com. The Funds feature portfolio management by Nuveen Asset Management, LLC, an affiliate of Nuveen Securities, LLC. Funds distributed by Nuveen Securities, LLC, a subsidiary of Nuveen Investments, Inc. 206 Nuveen Investments, Inc. All rights reserved. MQU-MUNIHY-06P 576-INV-Q-07/6